Average mortgage rate in Finland - 1.09% tracker!

Discussion in 'The Fair Mortgage Rates Campaign' started by Brendan Burgess, Jun 15, 2017.

  1. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: Jun 15, 2017
    I attach an extract from the CPPC report into mortgage rates.

    It has studied the Finnish mortgage market

    Similarities to Ireland
    Members of the eurozone - same as Ireland
    Total size of mortgage market - €92 billion - a bit smaller than Ireland's €124 billion
    Source of funding: Primarily retail deposits - the same as Ireland
    Maximum LTV 90% for second time buyers, 95% for FTBs. - Looser than in Ireland


    Differences from Ireland
    Mortgages track the Euribor rate
    The Finnish banks seem to require additional collateral - Average loan to collateral is 68%
    Defaulted stock 1.2% in Finland- compared to 18% in Ireland (in 2015?)
    No Loan to Income caps in Finland, but they are planned.
    Finnish banks seem to compete by offering one year interest only deals.
     

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    Last edited: Jun 15, 2017
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  2. Sarenco

    Sarenco Frequent Poster

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  3. RedOnion

    RedOnion Frequent Poster

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    I'm not too familiar with the Finland market, but it's not a fair comparison taking a country where customers borrowing over 70% LTV can get a state guarantee for the extra (the main source of the extra collateral). From a bank risk point of view that's a nice position to be in - the amount of their own capital required is minimised.
    Similarly tracking Euribor Vs ECB is much lower risk.
     
  4. Sarenco

    Sarenco Frequent Poster

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    It is provided the State doesn't go bust as a result!

    Finland boomed after oil was discovered off the coast in the mid-1980s. With low interest rates and loans available for the asking, house prices soared. Then, as the Soviet Union collapsed, unemployment rose and house prices started to fall, creating problems first for builders, then for homeowners, and finally for banks.

    The Finnish banking system effectively disintegrated under the weight of bad housing loans and had to be rescued, at huge expense, by the State.

    Sound familiar?
     
  5. fidelcastro

    fidelcastro Registered User

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    Hi, having knowledge of Finland the country has no oil or gas reserves. It is however an exceptionally well run country in terms of public administration, planning and environment with very high standards of education and innovation. The main trading block is with the Eurozone area and are more closely intertwined with this group than the Republic of Ireland.
    Housing is very very expensive. A 30msq flat in an ordinary Helsinki area will cost c.140k Euro. The standard of housing is very high however.
     
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  6. Sarenco

    Sarenco Frequent Poster

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    I didn't mean to imply that Finland itself had oil or gas reserves but rather that the discovery of oil and gas in the North Sea ushered in a boom period in the 1980s.

    I've absolutely no doubt that Finland is an exceptionally well run country. But it already experienced a credit fuelled housing bubble and subsequent banking bust in the late 1980s and it certainly appears from the outside that it may be repeating at least some of the same mistakes again now.
     
  7. Brendan Burgess

    Brendan Burgess Founder

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    Hi Red Onion

    That is very interesting. I did wonder where the collateral could come from. I doubt if many first time buyers would be able to provide other assets as collateral. I had thought it might be parental guarantees or, indeed, a cross charge on the parent's home.(The CCPC report should have mentioned such a salient factor.)

    Have you a link to some more information about the government guarantee?

    It effectively mean that the LTV is 70% from the banks' point of view.

    So Finnish lenders are offering 70% mortgages at 1.09% trackers. Compared to the lowest rate of 3.1% for a 70% mortgage here.

    I am still astonished how it could be so low. I wonder if there are other charges?

    Brendan
     
  8. RedOnion

    RedOnion Frequent Poster

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    I couldn't find much in English so relying on Google translate. There is an expat site with some info, but I can't post links yet.

    I think the more interesting question to ask is how their repossession process works, and if the borrower can be pursued for any shortfall.
     
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  9. RedOnion

    RedOnion Frequent Poster

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  10. RedOnion

    RedOnion Frequent Poster

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    Interestingly, here's a schedule of charges for Nordea in Finland.

    https://www.nordea.fi/en/personal-c...ome/housing-loan.html#tab=Prices_Key-Customer

    There is an arrangement fee charged to the customer. Additional charge where there is a guarantee. And a per item charge for collecting the repayments, and also for any reminder notifications for missed payments (Irish banks aren't allowed to charge these under MARP)
     
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  11. RedOnion

    RedOnion Frequent Poster

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    I'm still struggling to understand the Finnish mortgage market, so a few thoughts (apologies for anyone reading - not the most structured thoughts I've ever had!).

    One key difference I noticed early on is that about half of mortgages are issued to 'Housing Corporations' as opposed to private individuals. I thought I was on to something, but when I checked it's already factored into the statistics.
    Incidentally, here's an interesting chart of the imputed margin rates over the last 5 years that shows competition has been driving down margins: https://www.suomenpankki.fi/en/Stat...ennalliset_korkomarginaalit_suomessa_chrt_en/

    So I dug deeper. It's difficult to find actual customer rates on the bank websites, but I did find this when I went to the loan calculator on OP Bank.
    "The interest rate given automatically by the calculator is the current default interest on the home loan (12-month Euribor + customer-specific mark-up). You can change the interest rate and try how changes in interest rates affect the loan."
    The rate defaulted to 2.25%! It's possible that their website isn't up to date, but it's the only reference I could find to an actual customer rate
    https://uusi.op.fi/private-customers/loans-and-homes/loan-calculator

    One thing that is interesting is their funding model. I know the original report in OP referenced that mortgages were primarily deposit funded, but that's not the case. The Finnish market has benefited greatly from an uplift in securitisation recently - currently almost 50% of mortgages are pledged as security for covered bond type vehicles. Hypo for example is a niche lender, and references the use of covered bonds in reducing their cost of funds. They issued covered bonds for the first time in 2016, while almost doubling their loan book (they issued 1bn in new lending in 2016). Their covered bonds are 'AAA' rated, allowing them to fund a portion of their portfolio at near Euribor rates. From their annual report: "The inauguration of covered bond issues during the financial year decreased the funding costs which was clearly reflected in the improvement in Hypo’s net interest income." http://www.hypo.fi/wp-content/uploads/2017/03/HYPO_ar_2016_en_final.pdf

    Another point, as referred earlier, is that customers are charged an arrangement fee for setting up their mortgage. This tends to be around 40bps upfront.

    The bit that doesn't make much sense is their near zero impairment charges / provisions. Again, back to Hypo, in the year 2016 they had a total charge of 300k, directly attributable to 2 single loans!! "Loan impairments during the financial period totaled EUR -0,3 million (EUR -0.01 million) and were due to two problem loans." It's either a case that their collateral model really works, or they're in for a shock in the future.

    That brings me to their collateral structure:

    Their LTV is quite complex. From OP Bank https://uusi.op.fi/private-customers/loans-and-homes/home-loan
    "Example of calculating the LTV ratio: The home sales price is 100,000 euros. The home buyer's self-financed amount is 20,000 euros. They need a home loan worth 80,000 euros. In this case, the LTV ratio is 80% (80,000/100,000 *100), or compatible with the law.

    Because the home's collateral valuation accounts usually for 70% of the fair market value, the collateral shortfall after pledging the home is 10,000 euros (80,000 - 70/100*100,000) for which side collateral is needed. To fill this shortfall, the borrower could, for example, take out an OP cooperative bank's loan guarantee although that cannot be taken into account in the calculation of the LTV ratio."

    This would mean a customer would almost always need some additional guarantee, unless they've a massive deposit. These come at a cost of about 2.5% of the guaranteed amount.

    In summary, there are people who set up a mortgage lender here in the morning if they could offer mortgages with those collateral values, that funding base, and charging customers arrangement fees. And I'm talking about being able to reintroduce trackers here - but tracking Euribor rather than ECB, which is a much easier rate to follow for funding.
     
  12. malkmoose

    malkmoose New Member

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    I am a property owner in Helsinki and on Friday I started the process of switching my mortgage provider from Nordea to Handelsbanken. New rate from Handelsbanken is 0.75% tracking the EURIBOR 12 month. This is the lowest the rate will go i.e. if EURIBOR 12 rate goes down I will not get a reduction on my rate below the 0.75%. I was on 1.7% with Nordea which I thought was great until I was talking to a Finnish friend.

    For me to get the mortgage I had to get a state guarantee to make up the shortfall.

    Property Cost: 300K
    Mortgage: 250K

    The state were guarantor for the other 40K to get the LTV down to 70%.

    The application process was very simple (I don't speak Finnish) and it cost me around 500EUR to make the application if I remember correctly.

    If only we could apply for mortgages on Irish properties in Finland......
     
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  13. RedOnion

    RedOnion Frequent Poster

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    0.75%. Wow!

    Do you mind me asking how much the state guarantee costs?
     
  14. malkmoose

    malkmoose New Member

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    The application process for the state guarantee costed about €500, the bank led me through the process. I did not make any further payments for the state guarantee, there was an agreement between the Mortgage provider and the state until I got my mortage below the 70% LTV. I only make repayments on the mortgage I took out.

    I'm not sure how they share the risk, it's a good question. Maybe I'll ask the person in Handelsbanken out of curiosity